It’s not news to anyone that private colleges and universities have seen their fair share of financial struggles over the last decade. Tuition has increased up to 54% in order to support these multifaceted issues. But considering the economic fact that students are the way the organization generates its income, perhaps one of the greatest factors behind these tuition increases is the largest decline we’ve seen in total enrollment for higher education in a decade. These issues, and many more, help explain why employers face conflict when approached with the costs to provide health benefits to university employees.
It’s also important to remember that the core struggle existed well before 2020. In just three decades, more than 200 colleges and universities have permanently closed their doors, with 72 of them just since 2016.
This is why the issues at hand have now gone from perpetually negative to catastrophic. From the students who were unable to attend in-person classes requesting campus housing reimbursements, to the drop in enrollment altogether, the hits to higher education are all accumulating for a potential avalanche if not shored up. Forbes projects the total financial impact on higher education as a result of the Covid-19 pandemic to be over $120 billion.
It’s well past time to address the second-highest expense in your budget.
You have very limited options for where you can legitimately cut costs in your operation’s balance sheet. Any expenses that have substantial weight are generally that way for good reason. For example, you can’t lower how much you pay your employees, or else you won’t have them any more. You can’t really decrease your utility costs, your taxes, your maintenance, etc. all that much. And certainly you can’t decrease these costs enough to make the difference you really need.
This is why the first step is to address the second-most-expensive bill in your budget. We need to start by asking, “how much does it cost to provide health benefits to university employees? How much does it really cost?” The following are the top three costs to health benefits that CFOs and HR directors must evaluate in order to have a comprehensive understanding of the impact and the options available in this difficult space.
1. Cost of Losing
In organizational structure—particularly in budget strategy—no one item can be fully isolated from another. Naturally this is the very essence of how everything works together to accomplish the mission of the group. So when you’re looking at the cost of healthcare for your employees, it’s important to realize the collateral impact this overpriced line item has on everything connected to it.
In recent months, more workers than ever have been leaving their current jobs for new ones, citing their transition is due to a desire for better benefits. It makes total sense, because 56% of employees have been saying this same thing since 2018. This is why it’s more important than ever to not lose your top talent.
The reality is that it will cost your organization around 6-9 months’ worth of the annual pay to replace an employee. This means that 50-75% on top of the offered salary and benefits is the real cost of a new hire. The Center for American progress actually cites that for highly trained positions, that number can actually go up to 213% of total compensation. It’s literally the opposite of buy-one-get-one-free—this is like buy two but only get one!
Therefore, staying uncompetitive in health benefits is simply not an option. And everything mentioned above is just about employee retention—we don’t have enough room in this blog to start talking about recruiting! This is why you cannot ignore the costs of losing employees in the total expense of health benefit investment.
2. Cost of Overpaying
We all know that we have been overpaying for our underused health benefits… at least for those who are healthy and not having to use their insurance plan, of course. But even for those who do need health insurance, then the cost of medical bills is astronomical—so much so that even with coverage, you still run an incredible risk of bankruptcy for any type of serious medical care you or your family may need. So let’s look at the data to answer how much it costs to provide health benefits to university employees.
Group health plans have increased by 283.7% in cost in the past 22 years, an average increase of 12.89% per year. But with an 89.94% increase in employee pay, there has only been an increase of 4.28% per year in the same timeframe. That means the cost of group health plans is increasing 3X faster than employee pay in the United States. And even worse, from 1999 to 2021, deductibles have increased by 398%, or an average of 18.1% per year.
You are not only paying too much, you are getting too little.
It’s like hiring a vendor and then having them charge you more and more for them doing less and less work. This would never get approved by any board member for any of the expenses on the budget, so why do we keep letting the cost of overpaying for health benefits get a free pass? It’s time to find something better. And thankfully, it’s already existed for a decade now.
3. Cost of Savings
Group employee benefits have seen lots of changes over the years. One of the most notable is group retirement benefits. We all know about the transition that employers made from outdated and overpriced pension plans to individual 401(k) plans for their employees.
The growth was exponential as the popularity of this new delivery method of retirement benefits hit critical mass. Naturally, there was a bit of skepticism right from the start—considering any change to benefits is difficult on employees. But as the fundamental shift from a one-size-never-fits-all group benefit over to an individual benefit found its feet, employers found savings and employees found a more satisfying benefit.
The same thing has happened with health benefits—the delivery style has developed away from the old group benefit model and into something called managed individual. This has been around for nearly a decade, but has gained bipartisan support and growth in recent years. The Department of Labor projects that in the next three to five years, around 800,000 employers representing 11 million employees will make this change.
In the below graph you can see the direct comparison between the average monthly premium for employee-only coverage on a group plan versus its comparative equivalent individual plan. As expected, the cost for the group coverage keeps going up and up. But the individual plan costs keep going down, with now an average of 36% cheaper costs pound-for-pound. And in case you were wondering, no, these lower costs are not because of subsidies—these are the core plan costs before any Advanced Premium Tax Credit subsidies.
If you have at least 100 employees, you lost at least $1M the last 5 years.
As we look at the numbers above, you will see the average employee-only monthly costs comparing the more traditional style of group health benefits to the newer, cheaper, better version of individual plans. These are benchmark equivalents in terms of coverages and quality.
Tallying up the total amount of differences in costs over the past 5 years, you will see a total amount of loss or savings—depending on which side of the equation you use—of $9,804. That means with an organization that has at least 100 employees, $1M will have been lost in 5 years at minimum simply by not rethinking the delivery style of your health benefits to your university employees.
The reason for the stark cost difference between group and individual plans is manifold. But the primary two factors include the economic factors of the Law of Large Numbers alongside Supply and Demand—more people than ever are currently enrolled in individual plans—with an 8% increase from 2021 to 2022 alone.
Lastly, it is important to note that I mentioned that $1M of savings is at minimum because there are additional discounts and subsidies available on top of these core costs being so much cheaper. In general, a college or university can see even more substantial savings while giving better benefits as they leverage these new products and delivery systems of health benefits to their staff and faculty.
Learning empowers growth, so it’s time for you to learn more about this!
Change is scary. Not just for us, but for everyone we’re in charge of caring for—there are bigger impacts than just moving from plan to plan or network to network or carrier to carrier. That’s why I’d love to help you learn. Education gives us the facts, data, and analyses that are required to truly make the wisest decision.
Go to remodelhealth.com/webinar to register for our next free training session. Learning is your first step to really seeing what is possible with health benefits and what you can do to start controlling the total costs to provide health benefits to university employees.
